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EBay's Skype Writedown shows the Importance of Sticking to Your Industry

Article Submitted by: JRodgers
Stocks - Options - Mutual Funds


EBay's $1.4 billion writedown suggests not that they overpaid for it, but that they have never understood the prospects for trhe business.

 

Submitted: Oct 2, 2007    Views: 467    Comments: 0    Likes: 5   


EBay's yesterday announced that it was writing down the value of its Skype investment by $1.4 billion primarily to reflect a diminishing value of the company based on its results.  Ebay had paid $2.6 billion a couple of years ago for the company, and given management all sorts of kicker incentives to make much more.

To be clear, Skype is a fantastic company.  It is simply an outstanding product that is virtually indispensible to anyone who needs to speak with people in another country, for work or pleasure.  I highly recommend the product for family video conferences.  It is rightfully a verb as they destroy any Yahoo, Microsoft or, god forbid, any malware that AOL tries to market.  To Ebay's credit, they have not interfered with it.

Against that backdrop, it is amazing that EBay couldn't figure out how to make money on it.  At the time of the acquisition, Ebay spoke about all sorts of ways to make money with it.  While their arguments about synergies didn't make any sense, it did seem that they at least had a plan.  I guess now that they never did.   This entire matter underscores the point that Ebay is a high tech flea market, that cannot drive revenue from a real opportunity.

At $2.6 billion, I cannot imagine that Google wouldn't have figured out how to drive advertising revenue all over Skype.

I am not certain that Nokia and Microsoft aren't setting themselves up for similar write-down with Navteq and Facebook.


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